Updates from the Canadian Farm Enterprise Network, Canadian Farmers
for Justice and the Prairie Centre. Several of the items appearing here
originally appeared in an email list operated by Dwayne Leslie athttp://www.prairielinks.com.

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posted June 20, 1999

In search of the truth

By Craig Docksteader

Whether we realize it or not, grain transportation on the prairies
is standing at a significant crossroads. The direction we determine
to go and the decisions which are made about how to get there are either
going to help the prairie grain industry or hurt it bad. On this point
there is no disagreement.

In his final report to Transport Minister David Collenette, Willard
Estey put it this way, "Canada alone must face the grim reality
that remaining competitive in the world grain market depends almost
entirely upon reducing and holding to a minimum the cost of transporting
grain to tidewater or to rail export point." When considering how
to reform the prairie grain handling and transportation system, the
stakes are high, the implications broad, and the consequences long-lasting.
We can't afford to blow it on this one.

One of the more popular falsehoods, which has significant potential
to obstruct the pursuit of constructive change, alleges that rail deregulation
in the U.S. was a move in the wrong direction. In support of this position,
proponents like to refer to findings of the Alliance for Rail Competition
(ARC), a U.S.-based lobby group of rail shippers who are aggressively
pressing for changes to rail transportation.

ARC was formed because the U.S. rail transportation system has serious
problems. Since 1980, the number of major railroads in the U.S. has
decreased from 42 to four. This consolidation of railroads has resulted
in a significant increase in captive shippers (shippers who have no
competitive alternatives to the railroad serving its location). This,
in turn, has led to huge disparities in freight prices for shippers.
In some places, shippers can pay up to 200 per cent of what most transportation
experts consider to be a full cost and adequate return for a railroad.
Although numerous studies have shown an overall decrease in freight
costs since 1980, the U.S. system is still in need of significant restructuring.

The implication by those who support excessive government regulation,
however, is that the current problems in the U.S. are due to deregulation.
They conclude that farmers should be fearful of the Canadian system
moving the same direction and should fight to keep tight regulatory
control of the railways.

Nothing could be further from the truth.

In spite of critical problems present in some segments of the U.S.
system, ARC is not blaming deregulation. In fact, they are insistent
that problems exist because attempts to introduce deregulation in the
1980's didn't go far enough.

One ARC publication puts it this way, "Rail customers [including
members of ARC] believe free market forces are the best way to ensure
that the rail transportation market works best for everybody. More competition
and less regulation has worked for the trucking and telecommunications
industries deregulation is even coming to the electric utility industry.
Rail customers are advocating a competitive marketplace that will lead
to greater efficiencies, innovation, better service and lower prices."

ARC even wants to toss out the U.S. equivalent of railway costing reviews.
Called a "regulatory determination of revenue adequacy", ARC
maintains the regulation has ended up being used "as justification
for protecting railroads from competition" and has hurt shippers
rather than helping them.

Contrary to what some would have us believe, the Americans are not
pressing for a return to a regulated environment. Far from it. They
clearly recognize that the solution to inefficiencies and high prices
is found in less regulation and more competition.

The same is true for Canada.

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posted June 13, 1999

Reconsidering the Railway Rate Cap

By Craig Docksteader

If asked to pick which one of Justice Willard Estey's recommendations
has been the most controversial, most producers would choose the proposed
changes to the railway rate cap. More ink has been given to this recommendation
than any other. It has spurred letters to the editor, coffee-shop discussions,
and good old kitchen-table arguments. It would likely take first place
as the most contentious proposal for reforming the prairie grain transportation
and handling system.

But it also seems to be the most misunderstood recommendation, fueled
more by fears than facts. As one Manitoba farmer put it, "Nobody
has explained why the cap needs to be removed, if as the railways claim,
rates are going to be lower. Given the past 100-plus years of being
screwed by the railways, nobody with half a brain would trust a liberal
government and the railways to be endorsing something that is supposed
to benefit us."

After years of being subject to a system over which they have no control,
many farmers are understandably wary. But if you examine Estey's recommendations
for yourself, you will find at least five points which suggest the fears
are not supported by the facts:

While Estey did recommend that the current distance-based rate cap
be repealed, he went on to propose that a ceiling be established on
overall grain freight revenues. With the implementation of these recommendations,
the railways' earnings from moving grain would still be limited. In
fact, farmers would be guaranteed to pay less, not more, for freight,
with rates declining by a minimum of 5 per cent over the next three
years.

The significant difference is that with the removal of the rate cap,
the railways could charge different rates for different lines. Currently,
the rate is distance-based, regardless of how expensive or how efficient
any particular line may be. This means the railways receive no rewards
for efficiencies, and no penalties for inefficiencies. They are protected
from their mistakes, and given no reason to offer better service or
improve their performance. While this may appear to be advantageous
because everyone pays the same price for freight per kilometer, it means
the overall cost of the system is higher than necessary, forcing farmers
to pay more for less.

2. Disputes over freight rates can be settled through an arbitrator.

In addition to limiting railway earnings on grain freight, Estey insisted
that qualified arbitrators be made available to settle disputes over
freight rates. Farmers would not be left high and dry with no recourse
if rates appeared to be too high on individual lines.

3. Savings must be passed on to producers.

Estey asked for a review of the changes one year after implementation,
specifically to ensure that savings are finding their way to farmers'
pockets, and not simply being retained by the railways and grain companies.

4. Railway costing reviews would continue.

Estey also expressed support for periodic reviews of the cost of rail
transportation, even after moving to a competitive, contractual system.
This too, would serve as a check against escalating freight costs.

5. Changes could be implemented on a trial-basis.

Estey recognized that the effectiveness of this recommendation might
need to be tested over a period of time before being permanently implemented.
In his final report he wrote, "A guarantee of freight cost reduction...
would appear to be a sensible plan, at least for a reasonable trial
period."

When you tally it all up, the concerns over removing the railway rate
cap simply don't figure with the facts. It's a recommendation that producers
should reconsider.

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posted May 31, 1999

Prairie Centre launches web site

The Prairie Centre has launched its very own web presence at http://www.prairiecentre.org.
The site is still under construction, but up and running. They hope
to have it completely updated within the next couple of weeks.

Reality Check

By Craig Docksteader

Don't tell anyone I said so, but at times the Canadian Wheat Board
is brilliant. Their effectiveness at marketing the prairie wheat crop
might be questionable, but their prowess in manipulating their public
image is ingenious. They know where their strength comes from, and they
have learned to play that card over and over again, with remarkable
finesse.

When you get right down to it, the monopoly of the CWB is essentially
cast as the great protector of prairie farmers. Its strength is derived
from the perceived need to protect producers from grain companies, railways,
and one another. Without the monopoly, grain companies would offer farmers
too low a price, railways would charge too high a price, and with no
law binding them together a few farmers would unwittingly fall for the
ploy, somehow wrecking it for everyone.

This perception has historically garnered a reasonable measure of popular
support. With access to markets initially restricted to one local elevator,
and access to transportation limited to one local rail line, the monopoly
gave many producers a sense of power and protection from those whom
they feared would abuse them. In some circles, questioning the effectiveness
of the monopoly was like attacking prairie producers themselves and
was often accompanied by charges of conspiring with the grain corporations
or the railways.

Whether deliberately or instinctively, the Board knows that it must
zealously guard this image. To lose it, would be to forfeit the primary
defense of the need for a monopoly, which would inevitably lead to the
introduction of other marketing choices for farmers. In spite of sweeping
reforms taking place in the global grain trading marketplace, the CWB's
ability to retain its monopoly status has little to do with its performance
as a grain trader. It has everything to do with propping up its paternalistic
image as the defender of the prairie farmer.

That's why the Board vigorously opposes the full implementation of
Willard Estey's recommendations for the grain transportation and handling
system. If the report is implemented in its entirety, it will remove
the Board's role in transportation. And if the Board is proven to be
unnecessary to protect farmers from the railways, it is only a matter
of time until more producers become convinced that the monopoly is also
unnecessary to protect farmers from grain companies.

At a time when the monopoly has been the most vulnerable in its 56-year
history, the CWB's prolonged attack on the railways has been strategic.
In some areas, it has been a virtual trump card for public relations.
The fact that the existing transportation and handling system is tragically
under-performing, and that farmers pay all the bills and carry all the
risks, was virtually lost in the Board's scramble to protect its turf.

By vilifying the railways, the Board effectively buffed its image as
the protector of prairie producers. Even some dual-market supporters
were shaken by the scare tactics and misinformation. Although advocates
of choice in marketing, they suddenly became concerned that they would
not survive without the Board's protection from the railways.

There is, however, only one reality. Either the monopoly protects farmers
from powers that seek to devour the family farm, or it protects the
system that feeds off farmers, by restricting choice, competition and
accountability. It cannot be both. On the one hand the Board should
be given absolute control of the handling, transportation and marketing
of prairie grain. On the other, it should become a contractual, competitive
player that earns its business like everyone else.

We know what the Wheat Board believes, but the future will be shaped
by what farmers believe.

Estey gets a thumbs up

By Craig Docksteader

After almost five months of waiting, the verdict is in on the Estey
Report. The press release from Transport Canada stated it boldly, "The
government agrees with Justice Willard Estey's vision that the western
grain handling and transportation system can be made more efficient,
accountable and beneficial to farmers by moving to a more commercially-oriented
environment with appropriate safeguards to protect the public interest."

The announcement is good news for prairie producers. It means the industry
can begin to shake itself free from the suffocating restraints of over
regulation and move towards a more accountable, responsive and efficient
system. It means that the business of grain handling and transportation
will begin to be defined by commercial contractual arrangements which
will force those who screw up to pay for their own mess, instead of
simply passing the bill back to the farmer.

Not everyone will see it this way, though. Some producers still feel
strongly that Estey's recommendations will take the industry in a direction
that is not good for farmers. Especially the recommendation that the
rail freight rate cap be repealed and the agreement proposed by CP Rail
be adopted.

Even Estey himself didn't anticipate the degree of opposition that
this recommendation would invoke from a small but vocal sector of the
prairie grain industry. When Estey penned the recommendation he wrote,
"It might be said that a consensus on this issue among the stakeholders
has been close to being achieved. This Review can see no controlling
reason to reject the proposal advanced by CP..."

Ironically, it turned out to be this recommendation that generated
the most heat, the most ink, and the most serious accusations against
Estey. For suggesting that farmers would be better off in a deregulated
environment, he was branded as being in collusion with the railroads.
When Estey categorically denied any such bias, suggesting that anyone
who believed it was an idiot, he was subjected to another round of sputtering,
angry scolding.

Perhaps someone should have warned Estey that those who advocate changing
the prairie grain system are regularly accused of being puppets for
multi-national corporations. Instead of discussing the merits of the
issues, the pro-status quo sector often resorts to attacking the messenger
in an attempt to discredit the message.

Fortunately, however, it didn't work this time. In spite of an aggressive,
well-financed campaign to trash Estey's recommendations, and in spite
of misinformation alleging that U.S. rail deregulation hurt American
farmers, support for a deregulated grain transportation and handling
system held strong.

And for good reason. Numerous studies conducted between 1986 and 1998
which examined the impact of deregulation on U.S. railway freight rates
reported significant reductions in freight costs.

The fact is, that although some freight rates are higher in the U.S.
than in Canada, they were even = higher before deregulation. A 1990
report by the US General Accounting Office (the equivalent of Canada's
Auditor General) reported that deregulation in rail freight rates resulted
in significant benefits for U.S. farmers. The review found that "farm
products benefited more than other goods moved by rail. Rates for all
farm products moved by rail decreased by 44 percent during 1980 through
1987."

Even in Montana, which is serviced by only a single railway, freight
rates on grain dropped immediately by 12 percent on single car rates
after deregulation. This was followed by the immediate introduction
of multiple car freight rates, which by 1996 were 52 per cent lower
than the regulated single car rate.

Like the track record indicates, deregulation will be good for the
prairie grain industry, and moving ahead with Estey's recommendations
will be good for farmers. It just might take some longer to realize
it than others.

Why change is essential

By Craig Docksteader

There is a fair amount of wisdom in the familiar saying, "Those
who forget history are doomed to repeat it". So as the recommendations
on reforming the prairie grain handling and transportation system move
into the implementation stage, it wouldn't hurt to review some of the
reasons why significant change is essential. Following are quotations
from the Prairie Centre's recent publication "The Prairie Grain
Handling and Transportation System ­ It's Time to Move On":

"Around the world, the grain marketing industry is changing. Monopolistic,
government-run grain buying agencies are being replaced by private companies.
In 1990, 82 per cent of all grain sales were made through government-run
agencies. By 1996, the number had fallen to 44 per cent. This means
that when the CWB goes to sell farmers' grain today, it is a much different
world than it was ten years ago."

"...in 1989, before Brazil and Colombia privatized their grain
importing agencies, the CWB only had to sell to two customers in these
countries. By 1997 the number had risen to fourteen. In 1989 the average
contract size was 30 000 tonnes, falling to 20 000 tonnes in 1997 with
a wider variation in the contract size, ranging between 5 000 and 60
000 tonnes. The frequency of shipments also changed, with 50 per cent
more shipments in 1997 than 1989. This poses challenges which cannot
properly be met under the current handling and transportation system."

"...while customers are becoming more numerous and more specific
in their requirements, the current system is having trouble pulling
it off. On any given week, the port terminals only have between 52 to
89 per cent of the right product available."

"Much of the grain industry revolves around issues of "fairness"
or "equity", a policy which sounds nice, but farmers pay for
dearly. For example, when railcars arrive at port, they are directed
to a terminal based on equity considerations, not to maximize value
for the grain and satisfy customer requirements. Each port terminal
is entitled to their "fair share" of railcar unloads, and
therefore the railcars are unloaded accordingly, with no regard for
efficiency or economy."

"...when vessels come into port to pick up their load of grain,
they are directed to a terminal based on vessel requirements and terminal
stocks. The Vancouver Clearance Association balances the loading per
centage for each terminal to ensure that each terminal is getting their
share. There is no penalty to the Clearance Association for multiberth
loading or demurrage, which means there are no incentives for efficiency."

"Frankly, nobody cares about efficiency, because it's the farmer
who pays the bill anyhow. The focus of the system is on "equity",
and all the players are concerned about getting their cut of the farmer's
money, rather than having to take responsibility for how well they perform
their service and be actively looking for ways to do a better job."

"Vancouver Port has the ability to load ships at a rate of 30
000 tonnes per day. Yet during the last three crop years, only 61 out
of 1 400 vessels loaded at a rate of 13 000 tonnes per day or better.
That means 95 per cent of vessels were loaded at a rate which was less
than half the potential. This is the equivalent of having a hired man
who works a half hour a day at just over 50 per cent performance, and
drags along the rest of the day at less than half speed. At this rate,
by the end of the day he will have accomplished only two hours work."

"The bottom line? The existing system shields those who work in
the handling, transportation and marketing of prairie grain from the
impact of poor quality work. Consequently, they don't go out of business
for doing a poor job, farmers do."

Craig Docksteader is Coordinator with the Prairie Centre/Centre
for Prairie Agriculture, Inc. "Where Do We Go From Here" is
a feature service of the Prairie Centre.